Inflation with Covid Consumption Baskets

Alberto Cavallo

IMF Economic Review, 2024, vol. 72, issue 2, No 9, 902-917

Abstract: Abstract The Covid-19 Pandemic led to changes in expenditure patterns that introduced significant bias in the measurement of Consumer Price Index (CPI) inflation. Using publicly available data on card transactions, I updated the official CPI weights and re-calculated inflation with Covid consumption baskets during 2020. I show that the US CPI underestimated the Covid inflation rate, as consumers spent relatively more on food with positive inflation, and less on transportation and categories experiencing deflation. The bias peaked in May, when US Covid annual inflation was 1.02% compared to just 0.13% in the CPI and low-income households were experiencing nearly twice as much inflation as those at the top of the income distribution. I found similar evidence of higher Covid inflation in 14 of 19 additional countries.

JEL-codes: C43 E21 E31 (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1057/s41308-023-00213-y

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